Central bank researchers cautioned over the weekend that it is unlikely that the global economy will see a quick rebound from the damage related to the Coronavirus.
Claudio Borio, the Bank of International Settlements’ head of the monetary and economic department, recapped market action over the last quarter and said the impact of the Coronavirus globally no longer appears benign.
“Acute concerns and uncertainty gripped market participants, as the expectation of a rapid V-shaped recovery now appeared grossly unrealistic,” Borio said. He pointed to plunging risk assets, adding that “no one wants to catch a falling knife.”
The BIS facilitates coordination among 60 banks around the world, and released its quarterly review report on Sunday. The BIS cautioned that the Borio’s remarks do not speak for the BIS or the central banks that comprise its membership.
But Borio added that the markets appear to be functioning fine. Pointing to post-crisis reforms on the banking industry, Borio said financial intermediation also appears to be “resilient.”
“Now uncertainty rules globally,” Borio said. “The situation remains fluid. The official community is monitoring developments closely.”
The headquarters of the Bank for International Settlements (BIS) are seen in Basel, Switzerland October 24, 2017. REUTERS/Arnd Wiegmann
Borio’s comments come as markets – and President Donald Trump – put pressure on the largest central bank in the world to cut interest rates.
Over the course of the week, markets have swung heavily towards a rate cut from the Fed. Although Fed speakers have offered little hint of a rate cut coming, Fed funds futures markets have priced in a 100% chance of at least 25 basis points of easing in the central bank’s next meeting on March 18.
Powell issued an unplanned statement on Friday afternoon saying that the central bank would use its tools and “act as appropriate” to support the economy.
In a press conference to address the Coronavirus concerns on Saturday afternoon, Trump said he is “looking for the Fed to do its job,” adding that the Fed “should have the lowest interest rates” relative to other countries.
Borio’s comments did not have specific recommendations for central banks. But the BIS report noted that central banks of major economies continued to maintain their accommodative policy stances, pointing to only some large emerging market economies eased policy further.
“Where do we go from here? One thing is sure: financial markets will continue to dance to the tune of news about the virus, and of the authorities’ response,” Borio said.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.
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